Foster's wine spin-off surges on report of Chinese interest

By IBT Staff Reporter On 07/04/11 AT 8:48 AM

Shares in Australia's Treasury Wine Estates Ltd surged 11 percent to a record on Monday, valuing the world's second-largest winemaker at $2.6 billion, following a report that China's Bright Food Group was considering a bid for the company.

Treasury Wine, with brands including Penfolds, Rosemount and Beringer, was spun off by Foster's Group in May to its shareholders after the brewer failed with an expansion into wine that resulted in nearly A$3 billion in writedowns.

Following the split, both companies were seen as potential takeover targets and Foster's has already rejected a $10 billion takeover offer from brewing giant SABMiller .

Bright Food could bid for Treasury Wine's assets and make good use of its existing, large distribution network mainly in supermarkets, an analyst in Shanghai said.

It can also aim for expansion into high-end wine sales business in some regions where the red wine business is seen enjoying a stronger growth potential than dairy, said the analyst, who declined to be identified due to company policy.

Privately held Bright Food was trumped in a A$1.7 billion bid for CSR's sugar business last year, and also lost out in a bidding war for French yoghurt maker Yoplait in March.

The maker of Chinese candy brand Big White Rabbit has interests that span farming, food and beverage production and retailing and has said it wants to buy overseas assets.

Treasury Wine shares rose as much as 11.3 percent to a record A$3.75, valuing the company at A$2.4 billion ($2.6 billion). The shares were up 8.6 percent at 0437 GMT. They have gained 14 percent since they started trading on May 11.

'BUSINESS AS USUAL'

Treasury Wine, the world's second-largest wine company behind Constellation Brands , owns vineyards from the Hunter Valley near Sydney to the Napa Valley in California.

A Treasury Wine spokeswoman declined to comment on the share move or the report on Bright, saying it was business as usual at the company.

In response to a query from the Australian bourse, Treasury Wine said it was not aware of any other information that would explain the share's jump.

A Bright Food spokesman in Shanghai declined to comment on the report.

When Foster's still owned the wine business last year, it rejected a surprise takeover approach for the wine business worth up to A$2.5 billion from U.S. private equity firm Cerberus Capital Management as too low.

The wine business is valued at A$3.1 billion on Foster's books, about half what the company spent on acquisitions in a decade-long expansion at the top of the market.

The latest A$1.3 billion writedown last year took the total value of writedowns on wine assets to nearly A$3 billion.

A rising currency has been a constant headache for the company in recent years, cutting into its U.S. wine earnings at Beringer when translated back into local currency.

China accounts for two-thirds of Australia's wine exports to Asia, or 6.3 million cases out of 9.8 million, after a period of rapid growth, according to research by Goldman Sachs analysts.

The analysts said the Australian wine industry exports more upmarket wines costing more than $10 per liter to China than to any other country.

Australian government figures show that China is Australia's fourth-largest wine export market, behind the UK, United States and Canada.

Analysts say that unlike the beer industry, which is seen as saturated in China, there is enormous potential for growth in the red wine market, helped by support from the central government.

Foster's decision last year to split wine and beer was widely seen as a move to make each business more attractive to potential suitors, though the company has denied it.

There was no intention at all in de-merging the company to set it up for a takeover, Foster's Chief Executive John Pollaers told Australian Broadcasting Corp television on Sunday.

Bloomberg News reported on Friday that Bright Food has had internal talks about making a bid, citing two people familiar with the matter.

One of Australia's largest buyout firms, CHAMP, snapped up Constellation's Australian and British wine operations in December for A$230 million, betting on an upturn in the wine cycle.

(Additional reporting by Melanie Lee in Shanghai and Donny Kwok in Hong Kong; Editing by Ed Davies and Vinu Pilakkott)